Day trading margin requirements

[GordonDK 6]

Hi guys and girls,

 

I'm about to start my live day trading career next week, and I'm a bit in doubt about the day trading margin requirements for stocks, so here goes my question(s):

 

I have opened up an account with IB where I have deposited 35k USD in cash (just to make it more specific). IB have assigned me a buying power (bp) worth 4 times my initial cash equity = 140k USD. Does this mean that I can buy shares worth up to 140k USD without getting a margin call from IB? I'm using DAS Trader Pro, so will DAS automatically prohibit me buying shares worth more than my bp of 140 k USD, or do I have to keep a watch on this myself?

 

I'm a bit in doubt about the margin requirements for day trading in general because I found this article: https://www.investopedia.com/articles/active-trading/071114/guide-day-trading-margin.asp.

 

In the above article, it would seem that the margin or buying power (bp) is only calculated based on the excess maintenance margin. The maintenance margin would be 25 k USD, so the excess margin would be 10 k USD, which means bp = 4 * 10 k USD = 40 k USD - at least according to the above article. However, this is clearly not the bp that has been allocated to me by IB...

 

Are there any other margin requirements for day trading stocks, e.g. like you need to have 50% of the bought stock value in cash equity (and then you borrow the other 50% on margin), or does this only apply to swing trading where you hold the stock overnight? I took a look at the following IB info, and got a little unsure about the margin requirements: https://www.interactivebrokers.com/en/index.php?f=24862.

 

Would appreciate it, if some of the experienced day traders in our community could shed some light on this issue.

 

Thank you very much in advance!

 

 

Br.,

 

Jimmy

[Robert H 455]

I recently funded my IB Canada account and use DAS. Here are my observations:

 

1. Make sure the Buying Power in DAS matches your IB account summary. Mine do not. DAS shows my BP:Equity ratio as 4:1, while IB shows 3.333:1. I believe this is because my account is under $25k USD (Canadian).

 

2. DAS should prevent you from exceeding your BP. I tested this multiple times in SIM, and I sure hope it works with live. The order basically gets rejected with a warning about BP exceeded. Hopefully somebody else can confirm this in a live account. Again, this assumes that your DAS and IB BP match (point 1 above).

 

3. The IB link you shared has a lot of information which I think complicates things for day trading. In your situation, you have $140k BP. As far as I'm aware, that is calculated real-time from your Equity. Say you enter into a $50K position. That leaves you with $90k BP for any new positions. Somebody correct me if I'm wrong.

 

The part I'm unsure of is what happens if the $50k position increases in value to $75k intraday. Does the gain have to be realized before it is added to Equity? Or is unrealized gain added to Equity in real-time? I'll check this next week and get back to you.

[Lee W 82]

I'm pretty sure everything Robert is saying is correct. My IB account shows 4 times my cash equity as the buying power.

 

Nevertheless, I started researching this just to gain some more insight. I found a few links that have lots of information, although this may confuse the matter more. Hopefully not.

 

https://www.interactivebrokers.com/en/index.php?f=3983#23

 

http://www.finra.org/investors/day-trading-margin-requirements-know-rules

 

https://www.sec.gov/files/ib_marginaccounts.pdf

 

https://www.sec.gov/files/daytrading.pdf

 

Perhaps some of the above information will help. Otherwise, I'd suggest calling IB to speak with one of their customer service reps so you can get a better understanding of how it all works.

[Louis B 4]

I also have DAS linked with IB... IB says i have a cash account, DAS account window says margin... so im not sure which i will have at the moment. For me to get a margin account i need to have Options experience .. is this correct? Im sure there is a way around this...

[Robert H 455]

Louis, I noticed that DAS doesn't even calculate my buying power correctly, so always trust IB over DAS.

 

When you submitted your IB application, there was an option for Account Type:

 

In Account Management > Manage Account > Account information > Details > Account Details, does it match mine?

 

I would call IB support and ask them to switch account types.

[Louis B 4]

When i call them do i need to tell them i have Options experience? that is what they are saying i need on the website

[Robert H 455]

Where on the website does it say this? I found this page that says your request will be subject to a compliance review:

https://ibkr.info/node/280

 

I'm guessing they check your income, assets, experience etc. Since I do have options experience, I answered yes during the original application.

 

It doesn't make sense that you need options experience for margin on stocks though?

[Louis B 4]

On the IB sight in Account Management - Account Settings ... below is what it says...

 

Configure Account Type

 

Upgrade or downgrade your Account Type. You must be approved for options trading to qualify for a Portfolio Margin account.

 

.. which its refering to me changing it to a margin account from cash ... i originally did put cash... i dont know why i did

[Robert H 455]

Portfolio Margin is a completely different account type. It requires options trading permissions and a minimum net liquidation value of $110,000 USD. I think the leverage is something like 6:1. Read more here: https://www.interactivebrokers.com/en/index.php?f=1451

 

What you're looking for is a regular margin account (also known as Reg T Margin). This is what I and many other traders have. What are the options under the upgrade/downgrade Account Type page?

[Louis B 4]

Aaaah ok.. well thats good.. i will call them tomorrow..

 

on another note .. i also couldnt figure out how to convert some of my CAD into USD

Whats on the video is a totally different screen than what i have... i might need a walk thru or a more up to date video ... ive looked and cant find one so far

[Robert H 455]

The video is for TWS Desktop. Are you using TWS Mobile or IB WebTrader?

[Louis B 4]

The TWS desktop looked nothing like the one i downloaded so i tried Quicktrade and Webtrader in Account Management in the IB sight .. nothing looked familiar so i gave up for the day ... some time today i will tackle it again